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Wednesday, August 4, 2010

Stock Returns Of 70%+

Yesterday, shares of Blonder Tongue Labs (BDR) rose by 70%. You won't find stock returns of this magnitude in large-cap companies, which is why for truly exceptional returns, investors should look for value among the thousands of small and micro-cap companies that are for sale to the public.

Sales of BDR's newest digital product have taken off, resulting in large 2010 Q2 profits which were announced yesterday. But investors did not have to see the success of this new product coming; for the last year, the company has been trading at a massive discount to its net current assets and its land under ownership. The patient value investor had protected his capital from downside erosion (the first rule of value investing) and had left himself plenty of room for upside should the outlook for this company change.

Sometimes, investor outlooks for companies don't change for years. Inothercases, the outlook can change in a hurry. If the value investor concentrates on protecting the downside and leaving plenty of room for upside potential, he should do well in either case.